When is the Best Time to Buy?

So you’re ready to buy a home, but aren’t sure if now is the best time to buy. There are three major factors that can affect your decision: time of year, mortgage interest rates and affordability.

1. Is today the right time of year?

You’ve no doubt noticed that the real estate market booms every spring. That’s when more people list their homes for sale and more people are house hunting. It’s also the worst time of year to buy a home. Sellers have just listed and tend to stick to their original asking prices. The one exception is Easter Sunday; there are fewer buyers looking, so you’ll have less competition. If you find the right home, chances are good the seller won’t be seeing multiple offers that day, which makes Easter Sunday the second best day to buy.

What’s the best day? Christmas, for the same reason: you’ll have less competition that day. Sellers who are seeking buyers on Christmas day are highly motivated. So you can take advantage of the urgency by making an offer that day.

There’s another reason why buying during winter can be a smart move. After Labor Day, home prices start to fall and hit bottom in December, right around Christmas.

2. Mortgage interest rates are low—for now.

The federal government’s stimulus program has helped keep mortgage interests at their lowest level in decades. But the stimulus has been winding down, and experts predict that interest rates will begin to rise soon. If you’ve been waiting for low mortgage interest rates, you may never have a better opportunity than right now.

The interest rate you pay is critical, because the lower the rate, the lower your monthly payments will be. Lower rates give you other advantages as well. For example, you might be able to afford a mortgage with more favorable terms, such as a 15-year vs. a 30-year repayment period (the shorter the term, the less interest you’ll pay over the life of the loan). Lower rates may also mean you could afford to buy a more expensive home.

At CMG Financial, we can help determine how the advantages of low interest rates may benefit you. For questions about the tax benefits of your mortgage interest, be sure to consult your tax advisor.

3. Can you afford to buy today?

Of course, low mortgage interest rates and knowing what time of year to buy wouldn’t be of much help if you aren’t financially ready to buy the home you want. Whether you’re buying your first home—or your third—here’s a quick checklist to see if your home buying dreams are in line with your finances:

Income security: Do you have a steady source of income that can comfortably cover your new mortgage payment? Are there any circumstances that could affect that security in the future (change in job, new family member, etc.)?

Monthly budget: One rule of thumb is that you should allocate no more than 36% of your monthly income for debt, including a new mortgage. With this model, 31% would be put toward taxes and the remaining 33% for everything else, such as savings and investing.

Down payment: The most common down payment is 20% of the home’s purchase price. Have you saved enough for not only the down payment, but also the closing costs? Closing costs fluctuate for each situation so be sure to talk to your Mortgage Consultant early to make sure there are no surprises in the end. You’ll also need to set aside around 1% of the purchase price for annual repairs and maintenance.